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Morning Note: Rising Inflation, Red Hot Metal

Catherine Holahan of CNBC's "Fast Money"
Tuesday, 15 Feb 2011 | 11:05 AM ET

While the market watched earnings Tuesday morning, the Fast Money traders were focused on prices.

Inflation was the concern as China, the U.S., and the U.K. released data showing higher-than-targeted price increases in January from the prior year. Central banks often respond to higher-than-desired inflation by increasing interest rates in an effort to clamp down on prices, cooling overall demand in the country.

Price indices pointed to growing global inflation. China’s consumer price index climbed 4.9 percent in January from the prior year, above Premier Wen Jiabao’s inflation target of 3 percent. China’s producer price index showed even higher price hikes, rising 6.6 percent. In the U.K., consumer prices climbed 4 percent, twice the Bank of England’s target rate of 2 percent.

U.S. data also showed an inflation uptick. U.S. import prices climbed 1.5 percent in January from the prior month, nearly double economists estimates. It remains to be seen whether U.S. consumer prices will also surprise. Economists are expecting the U.S. to say CPI rose 1.6 percent in January when it releases the data on Feb. 17.

“China is running hot and will continue to tighten,” cautioned Stephen Weiss of Short Hills Capital. Beijing has already raised rates three times since October.

The inflation data had the traders keeping a wary eye on the markets and reexamining the appeal of gold. “Gold is still a bet,” said Weiss.

Contrary to market belief, large hedge fund managers were adding to — not selling — their gold positions in the last quarter. Hedge fund guru George Soros increased his holdings in SPDR Gold Trust in the past quarter by half-a-percent. John Paulson maintained his large position in the gold ETF.

For the best market insight, catch 'Fast Money' weekday nights at 5pm ET, and the ‘Halftime Report’ each afternoon at 12:30 ET on CNBC.

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